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Wednesday, May 25, 2011

Blockbuster Canada to close 140 stores

TORONTO - Some 1,400 Blockbuster Canada employees could lose their jobs if the movie and video game rental chain closes a third of its stores as part of a court-ordered receivership process.

One Canadian store manager, who spoke on condition of anonymity, said Tuesday the company has notified staff that 140 locations across the country will be closing their doors on June 18. Each store currently employs about 10 people, and staff are still waiting to learn what will happen to their jobs once the stores

Employees had already been warned that they would be paid weekly instead of bi-weekly and were instructed not to sell gift certificates.

The last day customers will be able to rent merchandise at the affected stores is Thursday, with a liquidation sale beginning the next day at those locations.

The receiver is looking for potential buyers interested in Blockbuster Canada's assets. The company currently operates 400 movie and video game rental stores that employ 4,000 people across the country.

Blockbuster Canada was placed into receivership by an Ontario court this month in the face of US$70 million in claims from various movie distributors, including Hollywood studios, and other suppliers.

Since 2009, Blockbuster Canada had been paying its parent company three per cent of its sales in exchange for the right to use, and argues that if the new owner strips them of that right, it would have a "devastating impact" on its business. Stores have been operating under the Blockbuster name in Canada for 21 years.

In papers filed in a New York state court, Grant Thornton said the Canadian operations need to keep using Blockbuster's intellectual property, which includes its name as well as the computer systems that allow it to rent movies.

Movie download and streaming service Netflix Inc. (Nasdaq:NFLX) accounts for nearly 30 per cent of Internet traffic into homes during peak evening hours, according to a study published by Sandvine Inc. (TSX:SVC) earlier this month. Video stores will soon face even more competition from Zip.ca, the Canadian company that currently rents videos by mail. It will soon partner with Samsung to offer rentals through Internet connected TVs.

Video on demand rentals through TV cable and satellite companies generated $210 million in revenues in Canada in 2010, up 20 per cent over 2009.

Rogers (TSX:RCI.B), which owns the second-biggest video store chain in Canada, reported a 31 per cent drop in sales in its video stores last year, compared to the year before. The company said it will continue to shut down stores due to a continued decline in business.

With the dark cloud looming over the Blockbuster brand for several years, its American unit was already shrinking when it filed for bankruptcy protection.

The American Blockbuster used to dominate the U.S. movie rental business, but has been losing as customers shifted Netflix, video on demand offered by cable providers, and DVD kiosks that charge as little as $1 for per rental.

The company had slimmed down to 3,000 stores in the U.S., less than a third of the peak of 9,100 in 2004. In the United States there are about 2,400 currently open with plans to close about 700 more by mid-April.